The second pilot (owner/operator) and instrument flight instructor departed a lake resort airport during VFR conditions on what was to have been a dual instruction cross-country flight in instrument meteorological conditions. During the VFR initial takeoff climb, the landing gear did not retract. The second pilot, who was the manipulator of the controls, made a VFR entry for a left downwind landing at the departure airport. Abeam the runway numbers, the engine lost all power. The airplane was not maintaining enough altitude to clear the trees. The flight instructor manipulated the controls and made an emergency forced landing into the water. During recovery of the airplane, it was noted that the jam nut on the throttle cable was loose and the tachometer drive cable ring nut was loose. Following the recovery and securing of the jam nut and ring nut, an engine test run throughout the power ranges was conducted without anomalies. The airplane records and tachometer indicated 15.76 hours since the last annual inspection. The gear microswitch tested satisfactory. Water in the gear motor and powerpack prevented testing of the gear retraction system.